When federal student loan borrowers resume making payments this September, IDR plans like REPAYE, PAYE, and IBR will look much different. By next summer, most IDR borrowers will be on the SAVE plan.
The good news is that things are largely improving for the better. For many, monthly bills will be lower. For others, forgiveness will come sooner.
The downside is that a time of transition can be confusing. Fortunately, despite names and terms changing, simplification is on the way.
REPAYE (Revised Pay As You Earn) vs. SAVE (Saving on a Valuable Education)
The most significant changes on the horizon are coming to REPAYE. Borrowers will see some changes happen right away, and other changes will happen in July 2024.
The big picture is that REPAYE is ending and will be replaced with SAVE. Think of this as a two-phase process.
Phase I starts with the repayment restart. REPAYE is still called REPAYE, but the calculations are a bit different. Borrowers still pay 10% of their discretionary income each month, but the discretionary income formula changes. Instead of using 150% of the federal poverty level in the calculation, the number jumps to 225%. For borrowers, this means a smaller monthly bill.
The next immediate change is that married borrowers who file their taxes separately can exclude spousal income from REPAYE calculations. This improvement makes REPAYE a better option for married borrowers.
Finally, REPAYE will start covering 100% of the excess interest the loan generates each month. The current REPAYE subsidy only covers 50%. For example, a $10,000 loan at 6% interest generates $600 per year in interest or $50 per month. In this example, if your REPAYE payment is $20, it means $30 per month in excess interest. In the past, REPAYE immediately forgives 50% of that interest, meaning our borrower has $15 immediately forgiven. Now, REPAYE/SAVE will cover all $30 of the monthly unpaid interest.
Phase II happens on July 1, 2024. REPAYE formally becomes the SAVE plan, and the remaining provisions of SAVE take effect. These provisions include earlier forgiveness for borrowers with smaller balances and lower payments for borrowers with undergraduate debt.
Digging Deeper into the SAVE Plan: For a deep dive into SAVE rules and a calculator to estimate SAVE payments, check out the SAVE calculator.
REPAYE/SAVE Enrollment and Eligibility
The vast majority of IDR borrowers will want to sign up for the SAVE plan.
To sign up, borrowers need to enroll in the REPAYE plan. Those already in REPAYE will get their payments automatically recalculated under the new terms. Once REPAYE formally ends, the borrowers on REPAYE will automatically be enrolled in SAVE. Borrowers can enroll in REPAYE or update their IDR enrollment on the Department of Education IDR enrollment page.
All Federal Direct Loans are eligible, including Federal Stafford (Subsidized and Unsubsidized), Graduate Plus, and Direct Consolidation. The one exception is that Direct Consolidation loans that include Parent PLUS loans are not eligible.
Borrowers with FFEL Loans and Perkins loans are not eligible. However, these borrowers can consolidate the debt into a federal direct loan to gain eligibility. Additionally, federal direct consolidation at this time should not reset progress toward student loan forgiveness.
Defaulted federal loans are also not eligible. However, the fresh start program will allow borrowers to resolve the default and enroll in REPAYE/SAVE.
PAYE (Pay As You Earn) Gets Sunsetted
PAYE was a noteworthy repayment plan because it offered the lowest monthly bill when it was first created.
With the creation of the SAVE plan, most borrowers won’t benefit from PAYE. SAVE will always offer lower monthly payments than PAYE. Additionally, more borrowers will qualify for $0 per month payments under SAVE.
The Department of Education policy is that no new borrowers can sign up for PAYE. However, those currently on PAYE can stick with this plan.
One reason that a borrower might stick with PAYE is if they have graduate loans and they are nearing the 20-year IDR forgiveness. On SAVE, a borrower with graduate debt must make payments for 25 years before earning IDR forgiveness. Borrowers chasing this form of forgiveness must balance the higher payments on PAYE against the earlier forgiveness for those with graduate debt.
IBR (Income-Based Repayment) Becomes a Rarely-Used Option
Borrowers on IBR pay 10% or 15% of their monthly discretionary income. The percentage depends on when they took out their first student loan. Those that borrowed after 2014 only pay 10%. Those with older loans pay 15%.
The IDR analysis will look almost identical to the PAYE analysis. REPAYE/SAVE is the cheaper and more affordable repayment plan for most borrowers.
The one exception is borrowers with graduate debt who are pursuing IDR forgiveness after 20 years. SAVE will make these borrowers wait 25 years.
The big difference between PAYE and IBR moving forward is that IBR will still be available for most borrowers, whereas PAYE disappears immediately for those not currently enrolled.
However, borrowers lose IBR eligibility after making 60 payments on SAVE after July 1, 2024. The purpose of this rule is to prevent graduate borrowers from making low payments on SAVE for 19 years and 11 months and then switching to IBR and trying to get forgiveness after 20 years.
The big decision for borrowers with graduate loans considering IDR forgiveness will be deciding between the lower payments of SAVE vs. the earlier forgiveness of IDR.
What about PSLF Borrowers? Borrowers pursuing Public Service Loan Forgiveness won’t have to worry about this issue. PSLF eligibility comes after 120 eligible payments (10 years worth). These borrowers can make payments on any eligible repayment plan, including SAVE.
ICR (Income-Contingent Repayment) Doesn’t Change Much
ICR was the first income-driven repayment plan, but it is also the worst one.
Moving forward, new students will not be able to enroll in ICR. However, borrowers with consolidated Parent PLUS loans can still sign up for ICR.
In the past, and under the new rules, consolidating Parent PLUS loans will be the only way to qualify Parent PLUS debt for PSLF or income-driven repayment.
Sadly, Parent PLUS loans cannot be eligible for REPAYE or SAVE. Thus, it remains critical not to consolidate Parent PLUS loans borrowed for your child with federal student loans borrowed for your education.
What if I Make Too Much for REPAYE/SAVE?
There isn’t an income cap for REPAYE or SAVE enrollment.
Borrowers with substantial incomes may have large payments, but there isn’t a salary cutoff for SAVE enrollment or calculations.
However, some borrowers may have incomes so large that other balance-based plans, such as the 10-year standard repayment plan, become more affordable.
Picking the Best Plan for the Restart
Despite the changes, things are pretty simple for most borrowers heading into the federal student loan payment and interest restart.
Most people will want to sign up for the REPAYE plan. It will have the lowest monthly payments, an interest subsidy, and eventually become the SAVE plan.
FFEL and Perkins borrowers should probably consolidate before the IDR Count Update deadline and sign up for REPAYE/SAVE.
Parent PLUS borrowers won’t be able to benefit from the new repayment plan. Their strategy hasn’t really changed.
Borrowers with graduate debt are the only ones who face a decision. They will need to compare the monthly savings of REPAYE/SAVE against 20-year IDR forgiveness. Notably, not all borrowers with graduate loans face this issue. If your loans are too old to qualify for PAYE or IBR for New Borrowers, REPAYE/SAVE will be the best option.
Frequently Asked Questions
Many of you have sent me emails with questions about how SAVE will impact your repayment strategy.
Here are some of the most common questions I’ve received:
No. Your progress toward loan forgiveness shouldn’t get reset by switching to SAVE. With the IDR Count Update scheduled for early next year, some of you will be very close to forgiveness.
Possibly. The new policy for the Department of Education is to only capitalize interest when required by statute. For borrowers on IBR, it will mean interest capitalization. If you are on PAYE, REPAYE, or ICR you should be able to avoid it.
Borrowers can take the necessary steps to sign up for SAVE right now.
When you sign up for any federal repayment plan, you are not committed to that plan. You have to certify income yearly for SAVE (which can be done automatically), but you don’t have to stay on SAVE for any duration of time.
Whenever there is a change to student loan rules, or student loans are in the news, servicers get swamped. Wait times will be longer, but if you have an important question about your loans, keep calling and keep waiting. Sometimes, it is your only choice.
Stay Up to Date: Student loan rules are constantly changing, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers updated on the latest changes and upcoming deadlines.
Click here to sign up. You’ll receive at most one email per month, and I’ll do my best to ensure you don’t overlook any critical developments.
Mr. Lux,
My student loan balance is approximately 325K (250K principal, 75K interest) and are all 6.8% interest except for the consolidation loans they generously offered at 6.55%. I am currently in the IBR plan. In November 2021, I had made 103 or 300 qualifying payments for IDR forgiveness. If we are credited for payments during the payment suspension period, my current payments should be at 124 or 125, leaving approximately 175 months or 14.5 years.
I am a 52 yo male, morbidly obese with borderline hypertension, which would make me 67 at my earliest loan forgiveness eligibility IF I live that long. I have $0 in any retirement, to include 401K, IRA and Roth IRA. Prior to grad school, I was employed by a municipality that did not take out social security (they had a city retirement) and until recently I had no meaningful income so I cannot even count on social security since I had only four years contributions during military service and a couple years of part-time high school employment. I do not own any property, but also hold no other debt. I have saved approximately 800K in a savings account bearing 0% interest which is partially savings during the I have saved during the loan payment pause period and an inheritance.
My annual income for the last two years was approximately $260,00 and should be about the same this year. I am self-employed. My previous income had been around 30-50K so I was unable to make loan payments. My life has been a series of bad financial decisions, mostly after changing careers in late 30’s prior to being vested, and not contributing to 401Ks, etc. I cannot change any of that now. I am hoping to be able to retire and not count on social security.
My options include (1) to apply for the new SAFE, (2) remain in IBR, or (3) pay off loan in it’s entirety. I hold no other debt. Using (1) or (2), I could invest the amount I have now in either certificates of deposit or try to find an investment where I can make more than 6.8%. I simply do not know where to start and have heard of too many nightmare stories of losses so I would rather have 0% interest than lose it all. What are your recommendations regarding this student loan balance and retirement savings conundrum?
There is one potential typo in your comment that will greatly impact my thoughts on your situation. You indicated that your income for the last two years was “approximately $260,00” and that you expected the same this year.
Did you mean $26,000 or $260,000?
The strategy for those two different scenarios is considerably different.
$260,000. Thank you kindly, sir.
That is definitely a tricky situation, Luke.
Based on the information that you shared, it seems like SAVE payments would mostly get applied to interest with only a small portion being applied to principal. With in unknown number of high earning years going forward, aggressive repayment seems somewhat risky.
Given the uniqueness of your situation and the large size of your balance, you might benefit from working with a financial planner who specializes in dealing with student debt. For example, I think you could benefit from setting up a self-employed 401(k), putting as much money in there as possible, and minimizing your SAVE payments. However, getting at the optimal strategy will require some discussion and running the numbers in far more detail.
Hi, I can’t believe I found someone who actually knows all about these programs- I am so grateful! Quick question: I have made 11 years of payments on the IBR plan and want to switch to SAVE. Half of my loans are FFEL, and I read about the consolidation “exception” you wrote about. I started filling out an application for consolidation, but on the last page before I hit submit, it very clearly states that my count will restart at zero. Despite reading that this will not hold true as long as I consolidate before the end of the year, it’s hard to stomach signing something that states the opposite. What is your legal advice on me signing this?
Unfortuantely, I can’t give you legal advice on this one as you are not my client and I am not your attorney.
However, I can tell you that the language on the consolidation application is based on the old consolidation rule that did restart progress toward forgiveness. Under the temporary one-time account adjustment, you should get credit for prior payments as long as you consolidate before the deadline.
I’ve gotten this question before from many different borrowers, and in a previous post, I shared my thoughts on the concerns about switching to SAVE and potentially losing progress toward IDR forgiveness.
Hello, you have been so helpful to my other questions. I cannot thank you enough. I have a somewhat complicated question about payments under these plans. Background is I have 19,500 in undergrad loans and 57,500 in graduate loans (totalling around 77k). My spouse has no student loans left to pay off. We have no dependents and live in MI and both work in academia. Our w-2s show my 2022 income is roughly 58000 and my spouse’s is roughly 53000. Under the PAYE plan, before the payment pause, I was paying roughly $630. It was still high, but it was the best possible option at the time per calculations on the fafsa site and we filed jointly to get it. Now I am seeing that REPAYE/SAVE will now no longer factor in my spouse’s income going forward, but the payment estimate I received for October is still based on previous year’s joint AGI of 111,000 so the payment is $558 but I am now solely on the hook for them since they are my loans. Using the provided calculator, if I just factor in my income, i should be seeing a payment of $215.51 (going down to $188.12 in July 2024). That is a significant difference in payment amounts and will be a huge help for me even factoring in the loss of some tax benefits that come with filing jointly. We spoke to a CPA last week and he said our situation is exactly why some people file separately and recommended filing separately next year. I am fine with that but it doesn’t change the reality. Having a $558 payment again after 3 years of none of them, with little to no upward movement in our income as our bills and COL has gone up, even though i expected it, is really putting a dent in our finances. I know they have a forbearance option to assist with the transition but to further complicate matters, I am trying to avoid doing any kind of financial forbearance because I am trying to get PSLF and only have to get 40 more certified payments. So for the question(s): do you have a recommendation for a way I can get lower payments starting in October that will also count toward PSLF? Or am I out of luck on lowering my payments until next year’s tax season if i want them to count toward PSLF? Ideally I would like to have both a low payment that matches my income and continue to be on track for PSLF through my job. We couldn’t have known this was coming when we last filed, I feel frustrated and anxious about making these payments again. I’ve taken on second job in anticipation of the student loan payments ending just to make sure I can continue making them. This has come at a terrible time.
One thought immediately comes to mind in your situation:
Have you talked with your CPA about possibly amending your tax return to separate? I have no idea if this is a viable option, but it is a question I’d ask if I was in your shoes.
Beyond that, I’d suggest filing your taxes right away at the beginning of 2024 and recertifying your income right away.
I will check with him and see, I wasn’t aware that was even a possibility. It would be great if they could amend the payments earlier than 2024. Thank you.
I have 5 loans (each start at $12,000 or under) for undergraduate.
3 are on SAVE
2 are on IBR
Can I consolidate just the IBRs so that they can be switched to SAVE?
If I have made 84 payments and the Covid forbearance equates to 36 months, might they all be discharged?
The $12,000 forgiveness in 10 years only happens if your total balance is under $12,000. Sadly, it isn’t a per loan thing.
You can consolidate your loans together, and if they have different forgiveness progress, it might make sense to combine them all before 12/31/23.
My son and daughter-in-law each have federal student loans with balances of about $12,500 each. They have 2 children and they filed a 2022 joint tax return. If they apply for REPAY/SAVE at this point in time, both of their incomes would be factored into their repayment amounts and the monthly payments would be more than what they are currently paying on a standard 10-year repayment plan.
Can they start to make payments in October based on what they were paying prior to COVID and wait to sign up for SAVE until their 2023 income tax returns have been prepared (changing their status to married filing separately)?
Is there any penalty if they don’t start to make payments in October until they are able to enroll in SAVE after their 2023 tax returns have been prepared? During COVID, the loans were in forbearance. Will those months/years still be credited as being paid?
Your thoughts would be much appreciated.
Thank you.
If they were previously on an IDR plan before the pause started, they can resume payments on their old plan for at least six months.
There is an “on-ramp” program that protects borrowers who don’t make payments when the restart happens. For example, they shouldn’t face negative credit reporting. However, starting repayment right away is the best practice for a few different reasons.
Finally, the COVID pause will count toward IDR forgiveness for the borrowers who were in repayment.
Hi! I signed up for SAVE and got a letter saying mine and my husband’s payments will be zero. I was all excited until I started looking into the FHA/USDA mortgage qualification guidelines and realized I’m in trouble. Do you think that with a zero payment they assume your loans to be in deferment? Do you think HUD or someone will change that quickly or offer lenders new guidance for the new plan? Qualifying for a mortgage with student loans isn’t a new issue, but having just made changes a couple years ago that helped buyers get around the IDR plan issues, I’m surprised this was overlooked! My timing for a mortgage is challenging enough as it is! Can I take myself out of SAVE and enter a repayment program that gives me an actual payment so I can qualify for a mortgage? Any feedback on this is super appreciated, thanks!!!!!
That is a tricky situation for the reasons you have outlined. First, to answer your question, you can switch to a different repayment plan. If you can qualify for a small monthly payment on IBR, switching while you pursue a home loan could make sense. Once you close on your new house, you can switch back right away.
How the mortgage lender treats $0 payments varies from one lender to the next. Historically, they used 1% of your loan balance as the monthly payment. Recently, many lenders will now use .5% as the monthly payment. Getting them to accept a $0 payment could be challenging.
If you know what lender you will be working with, I’d suggest discussing this exact situation with them. There isn’t a single uniform standard for underwriting, so someone who knows the exact lender process may have some insight to share.
I’d also encourage you to check out this article on getting student debt ready for mortgage applications.
Good morning Michael,
Thank you for helping all of us navigate these changes with more insight.
I am graduated in 2020 from graduate school, therefore have 0 years into repayment. I am currently enrolled in the PAYE program. As I began signing up for the SAVE program, my projected monthly payment went UP ~$175. (suspect due to my increased income)
Can I continue on the PAYE program for 6 months until my taxes are updated?
Or is it best for me to just bite the bullet and begin paying the increased payment with SAVE now.
Thank you for your time and knowledge.
You can always switch to SAVE at a later date. Based on your prior certification at a lower income level, waiting could be a smart strategy.
One potential downside that I can see would be missing out on the SAVE subsidy. Whether or not that makes a big difference will depend on your balance, interest rate, and payoff strategy.
Appreciated this explanation a lot!
So I am a resident doctor (so currently not making a significant amount of money and have quite a bit of student loans). I eventually plan to go for PSLF. I previously was on PAYE and one of the benefits is that when I finish my residency and have a significant pay increase that comes with it I would only pay the standard 10-year payment amount (or 20 years, I can’t remember). Either way, this is significantly cheaper than what the SAVE plan would make me pay. Do you know if I am able to continue this plan throughout my residency, then switch to PAYE once I graduate?
Thanks!
If you are on REPAYE, you won’t be able to switch to PAYE after July 1, 2024.
However, you could switch to the 10-year standard plan, as that plan is also PSLF eligible.
I’d suggest giving your servicer a call and talking through your strategy to verify eligibility and PSLF progress so far.
Hi Mike, thanks for the article. I’m on the PAYE plan as my wife is a high income earner. If I’m understanding you correctly, I can continue having low monthly payments under the SAVE plan if my wife and I continue to file taxes separately? But if we file jointly, then her income is factored into my monthly payment?
SAVE sounds appealing especially with the interest being covered. Until phase II starts next year, do I apply to REPAYE now? Or am I able to apply to SAVE? Thanks!!
Your understanding is correct. SAVE borrowers can file separately to exclude spousal income.
As for applying to SAVE, the Department of Education is transitioning over many of their materials to call REPAYE SAVE even though that technically doesn’t happen until next year. If you apply online, it should be called SAVE. If, for some reason, you don’t see that option on the form you are using, apply for REPAYE. They are different names but the plan is the same.
Michael –
This is great info, really appreciate you putting it together. Like other comments, I have a subjective question for you.
I currently have $227k in student loans, the majority coming from grad loans. Currently, I am on a PAYE and like others have been saving money ( $160/mo in a HYS) for the inevitable tax bomb to come at forgiveness time.
I have 12 years left out of 20 before I can apply for forgiveness.
My current PAYE ( monthly payment of $658) is based off of $65k salary from pre covid days. My current role is a sales role and over the last few years of covid my taxable income has ranged from $105k-190k. This year my taxable income will be about $80k.
I also have 1 dependent now, with a second due in March 2024.
Yesterday I started the SAVE application and because my income from 2022 was $190k, my new payment under SAVE would be $1900.
Since I’m not making that amount this year, I could use my current pay stubs and apply for SAVE through MOHELA to get a lower amount, but before I do I want to make sure it is worth it in the long run.
1) Since my income for 2023 will be drastically different than 2022, does it make sense to recertify now with paystubs or should I wait until I file taxes for 2023?
2) Based on your comparisons between PAYE and SAVE, is 12 years close enough to the 20 year mark to stick with PAYE?
Best,
Alex
All good questions, Alex.
I’ll start by saying that with subjective questions like this, I usually can’t answer a question with any certainty — it is a judgment call. Instead, I try to add nuggets of info that the borrower might not have so they can make a more informed decision for their circumstances.
For your first question, you can start repayment under your old payment of $658 and use that number for at least six months. You have some flexibility as to which income they use.
As for the second, I really don’t know. I’ve gotten this question a lot lately and will be making some spreadsheets to do some analysis for an in-depth look at this issue, but I already know it really depends on the borrower. If you sign up for SAVE, you won’t be able to sign up for PAYE after July 1, 2024, so you have some time, but soon your decision becomes permanent. I’d suggest doing the math and running the numbers under a few different scenarios. What do you finances look like if things go well for the next decade or so? What do you think the most likely income path looks like? What happens if things go poorly? I’d want to think about all of that with numbers in front of me before making any decision. If you’d like a referral for some financial planning, let me know.
I’d also encourage you to think about job security as you make your projections. You are earning great money now, but if you lose your job, are you likely to be able to find another one with comparable income? Alternatively, are you in a great industry and likely to earn way more in the future?
All of these factors would go into my decision if I were in your situation.
Thanks so much for your website!
Question regarding the legality of the new SAVE plan. Certain members of Congress are claiming they will take issue with the SAVE plan when Congress goes back in session in the fall (as reported by several news outlets). They claim the SAVE plan is illegal. Are there any merits to this claim and do they have jurisdiction to modify the terms that the Education Department sets for loan repayment terms?
Thanks!
I can’t answer that definitively, as that is a final determination that only a judge can make if there is a lawsuit.
I will say that the Department of Education is part of the executive branch, and they have created repayment plans before without issue. Certain members of Congress not liking the plan probably doesn’t make a difference.
As a federal borrower who is signed up for SAVE, it would require enough members of Congress to pass new legislation for me to get worried.
Thank you. I appreciate your insights!
I wanted to seek clarification on eligibility for the new IDR plans, especially REPAYE/SAVE. I am currently a full-time graduate student. However, I’d like to start making payments on my unsubsidized loans now to lower the amount of capitalized interest while I finish my degree. As a result, I want to know if, 1. Can I sign up for the REPAYE/SAVE plan while in deferment to obtain the benefit of the interest subsidy, and 2. Does this answer change depending on if I’m currently working? (i.e. if my income is zero during deferment I wouldn’t qualify, but if I was earning income I could). Thank you!
While you are in school, your loan isn’t in repayment, so you wouldn’t be able to sign up for SAVE. Whether or not you are working, your school will still report to the Department of Education that you are in school.